India’s way- a case study in state
planning and protectionism
The infant industry argument for protectionism is often used as part of a wider theory based
on import substitution industrialisation (ISI).
After India achieved independence the country embarked on a series of measures designed to
encourage economic development. India was keen to reduce its dependence on trade ties and
imports form its old Colonial master, Britain. Therefore it started a series of reforms designed
to encourage import substitution and self-sufficiency. Most of these reforms were state- led
and involved state ownership and control of key industries (socialism) and
PROTECTIONISM.
TASK Apply the following criteria to evaluate the theory of import substitution- as applied to
India. Because of the overlapping nature of the criteria, they do not have to be applied
separately.
Criteria for evaluation
What are the long run
implications
of
protectionism as opposed
to the short run?
Consider the argument from
the points of view of the
different stakeholders, e.g.
domestic producers, domestic
workers,
consumers,
government, foreign producers,
foreign workers, etc.
Does the infant industry
argument
have
more
validity for a developing
country than for a
developed country?
References:
 Video clips from Commanding Heights for real world examples (esp. on India):
Episode
1Battle
of
Ideas:
chapter
10
http://www.pbs.org/wgbh/commandingheights/lo/story/ch_menu.html
Episode 2 – The Agony of Reform: chapters 4, 5, 17 & 21
http://www.pbs.org/wgbh/commandingheights/lo/story/ch_menu_02.html
 Handout on protectionism
 See also http://www.tutor2u.net/economics/content/topics/trade/import_controls.htm